UK innovation loan

New Innovation Loans for UK SMEs

Innovate UK launched a brand new loan programme for SMEs to scale up and grow this week. Offering a market-leading interest rate of 3.7% over a 10 year repayment period, it offers businesses the crucial breathing space they need to refine a new product ready for commercialisation.

Research and development is risky and it’s not unusual for an R&D grant funded project to hit the buffers when the grant runs out. Typically, the solution works but is not robust enough to commercialise straight away. Further refinement is often needed in more prototyping, piloting, testing and customer demonstrations in real-life environments before it can be launched into the market. Failure to do so could mean a new solution doesn’t achieve successful market penetration because it’s simply not robust.

This new innovation loan is aimed at single SMEs but they will need to afford the interest and repayments. SMEs will be able to borrow from £100,000 to £1M at an interest rate of 3.7% (that’s better than student loans) over a load period of up to 10 years – comprising a 3-year draw down period (extendable by a further 2 years) and a repayment period of up to 5 years. Security is required against assets purchased or IP developed in the project but no personal guarantees are required. Applicants will need to prove that loans are for business purposes.

Innovate UK has allocated £50M in a pilot programme to run over 2 years to the end of 2019. Loans will be allocated across thematic funding rounds in much the same way as R&D grants are currently allocated. Unfortunately that does mean that if your innovation doesn’t fit with the theme – there’s no point in applying! Limited funding will also mean that loans will be allocated on a competitive basis with only the very best proposals getting funding – so you will still need a compelling proposal to succeed.

My analysis – there’s no question that this new funding approach addresses a very important funding gap in the market, but we still have to remember that a loan needs to be paid back. Given the choice, I would much rather go for the new European SME Instrument and FTI R&D grants that aren’t restrictive thematically and don’t have to be paid back!

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